Jennifer Tejada

Mar 16, 2023

Bookmark icon Summary: Digital operations vendor PagerDuty has had a stellar year, despite tougher macroeconomic conditions and elongated buying cycles. (Image by Dirk Wouters from Pixabay ) PagerDuty, a SaaS company that specializes in digital operations and incident response, has had another stellar quarter and beat the high end of both its top and bottom line guidance ranges. It was the vendor’s first $100 million quarter and CEO Jennifer Tejada said that the organization is faring well despite the tougher macroeconomic conditions. Speaking during the Q4 earnings call, Tejada told analysts: We delivered a solid fourth quarter and another strong year in FY2023. We are demonstrating durable and now profitable growth through significant product innovation and disciplined go-to-market execution. Revenue grew 32% year-over-year, and we added 379 net new customers to our platform during FY2023. We achieved non-GAAP profitability one-year ahead of plan with an operating margin of 1%, up 900 basis points over FY2022. The key numbers for Q4 are: Revenue was $101.0 million, an increase of 28.6% year over year GAAP operating loss was $26.5 million; GAAP operating margin of (26.2)% Non-GAAP operating income was $6.1 million; non-GAAP operating margin of 6.1% Full year 2023 numbers include: Revenue was $370.8 million, an increase of 31.8% year over year GAAP operating loss was $129.4 million; GAAP operating margin of (34.9)% Non-GAAP operating income was $3.5 million; non-GAAP operating margin of 0.9% Other notable highlights mentioned include: Finished the fourth quarter with 15,244 total paid customers as of January 31, 2023, compared to 14,865 in the year ago period Reported 752 customers with annual recurring revenue ("ARR") over $100,000 as of January 31, 2023, compared to 594 in the year ago period Reported 50 customers with ARR over $1,000,000 as of January 31, 2023, compared to 43 in the year ago period. Reported international revenue of 24% of total revenue for the year ended January 31, 2023, consistent with the year ago period It’s been a difficult year for some B2B software vendors, as buyers face budget restraints, higher interest rates and are making more considered decisions about which partners are considered strategic over the long term. Commenting on the macroeconomic environment, Tejada said: While we executed well in an increasingly difficult macroeconomic climate, we saw customers exercising more diligence and adding approval levels for medium to large deals. This has resulted in sales cycles elongating each of the past three quarters and transaction sizes decreasing. While annualized churn remained well below 5% of starting ARR, we experienced elevated levels of churn from small and medium sized customers in Q4. In some cases, customers acquired seats in line with, but not ahead of current needs. “From a new customer acquisition perspective, tighter budget management and more restrictive buying authority added increased friction to landing new accounts, particularly in SMB. In terms of how PagerDuty is combatting the market headwinds, Tajeda said: We've adapted to these dynamics in two principal ways. First, we have sustainably improved our cost structure to scale more efficiently and profitably while investing in platform differentiation that widens the competitive gap. Second, we are successfully engaging customers with a comprehensive operations cloud value proposition to help them optimize their operating efficiency and to streamline their technology ecosystems. As a result, platform opportunities now make up a higher mix of our total pipeline than a year-ago. Customer trends Tajeda said that PagerDuty has increased its new product “velocity” in a meaningful way during FY2023, with several new product releases that were aimed at expanding the vendor into a broader enterprise customer base. These product releases include Incident Workflows, Event Orchestration for AIOps, Automation Actions, Status Pages, as well as a new customer service offering. As noted above, PagerDuty has significantly increased the number of customers paying more than $100,000 a year in ARR, which is a good indicator of how it’s performing amongst enterprise buyers. On the product side, Tajeda said: Looking ahead to our FY2024 platform roadmap, we expect to continue investing in a high rate of innovation across the Operations Cloud. We will build on our workflow automation, expand our AIOps offering, further enable distributed process automation, and add additional flexibility to design workflows for customer service teams and other business operations use cases. I want to thank our product and engineering teams for one of our most productive, innovative years to date. Our go-to-market teams also executed well, despite a tougher demand environment evolving as the year progressed. Commenting on one banking customer in particular, Tejada pointed to it as an example of how PagerDuty is performing well amongst buyers in highly regulated industries, where they are using the vendor’s Operations Cloud to maintain security and compliance, whilst increasing productivity. She said: This quarter, a Global 500 North American Consumer Bank signed a six-figure expansion, including our largest customer service operations deal of FY2023. The customer also added process automation and expanded their incident response deployment. They now invest over $1 million in annual recurring revenue with PagerDuty and are actively evaluating our AIOps solution. By partnering closely with the CTO, we aligned on priority operational outcomes for the year. PagerDuty has become the bank's strategic partner for modernizing their operations. We conservatively anticipate an initial ROI of over 300% with a payback period of as little as three months. Organizations of all types need to modernize their operations in the face of rapid digitization. The cost of interrupt work and disruption has never been higher. Ticketing and queued solutions fail to address the complex nature of modern digital operations. Our customers continue to demonstrate their need for greater efficiency and faster paths to value, choosing PagerDuty as their long-term strategic partner and the Operations Cloud as their platform for engagement. In terms of expectations for the next year, Tejada said that whilst the macroeconomic conditions continue to evolve, PagerDuty is benefiting from “long-term tailwinds” - namely DevOps transformation and cloud adoption. She said: We are confident in our long-term opportunity, and as such, we will continue to invest behind our strategic priorities while improving our operating margins. We are still early in a large market and we remain focused on building a durable and profitable growth company. Our innovation has strengthened our competitive advantages and brought several new products to market that we have begun to monetize. Our high levels of customer loyalty are validated by our net retention and continued growth of customers spending more than $100,000 annually. Read more on: